Archive : The state of the corporation

State Of The Corporation
Gordon Kent, concerned, checks the pulse of Austin Rover

Sir Michael Edwardes, when he was still boss of BL, insisted that the LC10 range was more important to the group than even the Metro. The rest of the industry agrees with that sentiment. Indeed, many remain puzzled about why the first of the range, the LM10, has been so long in coming.

Should not the new Edwardes team when it first took over in 1978 have concentrated on a new medium size car?
As one of his rivals put it: “Any motor industry man would have looked at the market and seen that 60 per cent is taken by medium sized cars. When Edwardes found that BL had nothing planned for that sector until 1983 he should have shoved everything else aside to get a medium car to the market as early as possible. He could have asked for the moon at that time.”

Sir Michael admits that BL would be in a much better financial position – and might even be profitable now – had they first launched LC10. But when he arrived at BL, engineering of the Metro was so far announced that he gave the go-ahead.

He remains convinced that BL would not have survived as a volume car producer without ‘Metro year’ –1980 – and insists the LC10 programme could not have been brought forward for a launch earlier than the end of 1981.

To gain economies of scale BL have been reducing the 13 model car range Sir Michael found in 1978 to three model ‘families’ centred around the Metro, the LC10 range and a revamped Jaguar.

By the mid-1980s the Ambassador, Ital, Rover SD1 saloons and Mini will have been eliminated from the range, following the disappearance of the old MG’s, Triumph Spitfire, TR7, Dolomite, Maxi and Allegro. The new cars will incorporate as many components as possible that can be used not only across one ‘family’ but two or three.

The first of the £200 million LC10 range, the LM10, will be launched on March 1st in time for the 1983 Geneva Motor Show. It is a five door hatchback seen as competition for such cars as the Volkswagen Golf and the Ford Escort. It will be assembled at Cowley. LM11 will follow.

Initial output should run at an annual 3000 rising quickly to 6000 a week if Austin Rover have their marketing plans right. The potential capacity for the Metro is 6500 a week but even if the small car does no better than its current 4500 a week, the Metro and LC10 ranges should push Austin Rover’s output from Cowley and Longbridge above 500,000.
This summer, Austin Rover chairman Harold Musgrove said his company were still on target to produce 450,000 to 500,000 cars in 1982, up about 10 per cent from the 1981 level.
Continental sales, which should be about 100,000, have been offsetting the lower than expected UK volume.
Austin Rover suggest that output from their two plants should reach around 540,000 a year in the mid-1980’s and this fits a broad picture that has the company taking a 25 per cent share of a 1.7 million units UK market and making around 120,000 cars for export.

So that Austin Rover can compete in those Continental markets where diesel engines are popular, there is an agreement with Perkins jointly to dieselise the O-series engine. If the deal gets approval in the 1983 corporate plan, the idea is that engines of 1.7 litre capacity would be built on existing Longbridge lines, side by side with the petrol units. Capacity is no problem because the Longbridge lines could produce 250,000 units on a double shift system and have recently been turning out only 70,000.

At one stage, Austin Rover attempted to persuade Volkswagen that they should jointly develop an engine ( petrol with diesel potential ) which the British group would then manufacture and sell to VW. This would have eased the import bill considerably, for Austin Rover are buying four speed, five speed and automatic gearboxes from Volkswagen for the LC10 range – not an example of collaboration but simply a buying in arrangement which will have a considerable adverse impact on the on the profit per car.

Austin Rover had developed their own new gearbox but it was decided the £75 million required to get it into production should not be spent. Ray Horrocks ; chairman and chief executive of BL Cars, believes that the uncertainties about the direction the industry will take with gearboxes and engines are so great that Austin Rover simply cannot justify any substantial investment in either.

The BL corporate plan already includes provisions for more LC10 models. There is still LM14, a replacement for the Ambassador and the LM15, scheduled to supercede the Rover SD1 saloon.

But whether those go ahead depends on the outcome of the negotiations with Honda about the XX. If that deal is signed – and the signs seem favourable – the two companies would jointly develop a car comparable in today’s terms with the Audi 100 or the smaller BMW’s – the Rover’s patch.

However, if the first LC10 models do not prove to be successful then the later ones probably will not appear. Cash flow from the early cars is expected to finance the investment required for later ones.

Austin Rover’s future, therefore, is riding on the reception the fleet buyers who take at least half the new cars sold in Britain, give the LM10 and LM11.

The fleets want to buy British but the competition is getting ever more fierce. Fleet managers are under intense pressure to buy the Cavalier because that is the car the ‘reps’ love at the moment. Ford’s marketing power will ensure the success of the Sierra here.

Austin Rover want to break even at pre-tax level in 1985 when they should have full benefit of LM10 and LM11. The prices AR can squeeze out of the home market will be a vital element.

But it is not just weak demand and over supply all over Europe which is holding down UK car prices. It is also the widespread publicity given to the fact that Continental prices are much lower than those in Britain. If, as we must expect, car prices in the UK and on the Continent gradually drift closer together, the room Austin Rover will have to put a premium price on the LC10 range will be minimal.

Rover’s 9 per cent increase in sales last year was a sterling performance in the face of a European car market accelerating hard in reverse. Indeed, the percentage rise looks even healthier when the Concertos [...]